Williams was having something of a resurgent season for the Lakers, averaging 5.2 points, 4.5 rebounds and 0.9 assists in 32 games.
His defense and ability to stretch the floor from the power forward position had earned him 11 starts.
"He did everything we asked him and he played well," Lakers coach Mike D'Antoni said. "With the injuries and being able to keep flexibility and look at areas to shore up, we felt like that's what we had to do.
"It's hard for everybody. You do get attached to guys you enjoy walking down an alley with. He will fight for you in a heartbeat and he was a voice in the locker room for us. I could trust him basketball-wise anything I told him. He did the best he could do. He was good. I'll miss him."
Williams was one of four Lakers players who had to be waived by 5 p.m. Tuesday, or his contract would be guaranteed for the rest of the season. Rookie forward Ryan Kelly and guards Kendall Marshall and Xavier Henry were the others.
D'Antoni said he hoped Williams, who had a checkered history before coming to Los Angeles, would get another opportunity in the NBA.
"It would be a shame not to. In this business we put labels on people and you don't get to really know them," D'Antoni said. "I put a label on him before I got to know him. I know what happens. It's the easy way out. But he's earned [another opportunity]. I hope somebody bites on it. They'll be surprised and be happy with it."